Correlation Between Mitie Group and Varta AG

Can any of the company-specific risk be diversified away by investing in both Mitie Group and Varta AG at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Mitie Group and Varta AG into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Mitie Group PLC and Varta AG, you can compare the effects of market volatilities on Mitie Group and Varta AG and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Mitie Group with a short position of Varta AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mitie Group and Varta AG.

Diversification Opportunities for Mitie Group and Varta AG

0.16

Correlation Coefficient

Mitie Group  Varta AG

Average diversification

The 3 months correlation between Mitie and Varta is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Mitie Group PLC and Varta AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Varta AG and Mitie Group is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Mitie Group PLC are associated (or correlated) with Varta AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Varta AG has no effect on the direction of Mitie Group i.e., Mitie Group and Varta AG go up and down completely randomly.

Pair Corralation between Mitie Group and Varta AG

Assuming the 90 days horizon Mitie Group PLC is expected to generate 0.24 times more return on investment than Varta AG. However, Mitie Group PLC is 4.12 times less risky than Varta AG. It trades about -0.01 of its potential returns per unit of risk. Varta AG is currently generating about -0.02 per unit of risk. If you would invest  135,200  in Mitie Group PLC on September 22, 2024 and sell it today you would lose (19,150) from holding Mitie Group PLC or give up 14.16% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Mitie Group PLC  vs.  Varta AG

Mitie Group PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mitie Group PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Mitie Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Varta AG

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Varta AG are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Varta AG exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mitie Group and Varta AG

The main advantage of trading using opposite Mitie Group and Varta AG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mitie Group position performs unexpectedly, Varta AG can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Varta AG will offset losses from the drop in Varta AG's long position.

The idea behind Mitie Group PLC and Varta AG pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.